Lana Powell is seeking part-time employment while she teaches school. She is considering purchasing technical equipment that will enable her to start a small training services company that will offer tutorial services over the internet. Lana expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance. Thereafter, she expects demand to stabilize. The following table presents the expected cash flows. Year of Operation Cash Inflow Cash Outflow 2010 $6,500 $4,000 4,500 3,000 7,000 4,200 4,200 7,000 In addition to these cash flows, Ms Powell expects to pay $7,300 for the equipment. She also expects to pay $1,200 for a major overhaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $750 salvage value and a four-year useful life. Ms Powell desires to earn a rate of return of 10 percent. What is the Net Present Value of the investment opportunity? (Round computations to the nearest whole penny). 2011 2012 2013

Lana Powell is seeking part-time employment while she teaches school. She is considering purchasing technical equipment that will enable her to start a small training services company that will offer tutorial services over the internet. Lana expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance. Thereafter, she expects demand to stabilize. The following table presents the expected cash flows. Year of Operation Cash Inflow Cash Outflow 2010 $6,500 $4,000 4,500 3,000 7,000 4,200 4,200 7,000 In addition to these cash flows, Ms Powell expects to pay $7,300 for the equipment. She also expects to pay $1,200 for a major overhaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $750 salvage value and a four-year useful life. Ms Powell desires to earn a rate of return of 10 percent. What is the Net Present Value of the investment opportunity? (Round computations to the nearest whole penny). 2011 2012 2013

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 9E: Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required:...

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Aaron Heath is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a small training services company that will offer tutorial services over the Internet. Aaron expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance. Thereafter, he expects demand to stabilize. The following table presents the expected cash flows: Year of Operation Cash Inflow Cash Outflow Year 1 $ 14,300 $ 8,700 Year 2 18,800 11,500 Year 3 22,100 13,400 Year 4 22,100 13,400 In addition to these cash flows, Aaron expects to pay $20,100 for the equipment. He also expects to pay $3,600 for a major overhaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $1,800 salvage value and a four-year useful life. Aaron desires to earn a rate of…
Economics GO GREEN Recycling Company starts its recycling business today. It recycles paper, cardboard, aluminum, and glass. The initial investment for this business is $510,000. The net cash flow at the end of the first year of business is forecast to be only $10,000. But it is expected that the net cash flow will increase at a rate of $40,000 per year starting from the end of Year 2. (а) Draw a cash flow diagram for the first 5 years. (b) What is the present worth of ALL the cashflows for the first 5 years at an interest rate of 10% per year? Round off your final answer to the nearest integer. (c) If GO GREEN sells its business for $710,000 at the end of Year 5, can we say this business has achieved an internal rate of return greater than 20% per year? Why?
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